Top 4 Financial Milestones to Consider Reaching Before You Retire

Top 4 Financial Milestones to Consider Reaching Before You Retire

Today I have the honor of featuring a guest post from a terrific writer. James Paul is a financial educator and blogs about money management, personal finance, college financing and retirement. His personal finance blog delves into financial wellness topics and the integration of money matters into life. Enjoy the post!

Planning to retire anytime soon?

Have you considered the financial milestones to reach before you retire?

For most Americans, retirement is a period where you have worked enough and plan to spend time relaxing or towards your hobbies. Retirement can also be termed as a new beginning for those who’re prepared for it. However, for others, it can turn into a stressful situation if you’re not fully prepared both mentally and financially.

No matter when you’re planning to retire, but it’s essential to be prepared for it well in advance. We share with you the top 4 financial milestones to consider before you retire. Once you’re prepared for combat with the below 4 situations then you can enjoy your retirement phase peacefully.

4 Financial milestones to reach before retirement:

1. Plan to save enough to cover your cost of living for at least 3 months

You might be saving for your retirement in your IRA or 401(k) accounts. However, have you given a thought to having an emergency fund post-retirement?

So, apart from your savings stocked up in retirement accounts (IRA or 401(k)), you need to have enough money saved in your emergency fund account to cover your cost of living for at least 3 months.

Why emergency fund?

An emergency fund would provide you immediate access to money for any unforeseen emergency need. As in the case of IRA or 401(k), your money would be invested and thus would take some time to liquidate that amount. You might have to wait to have the amount in hand from your retirement accounts.

In such situation, if you’re prepared and have enough savings in the emergency fund then you can use it at times of need. This will also save you from selling your investments suddenly and face a loss. Thus, you need to have an all-cash emergency fund with you even when you have a saved enough in your retirement account. The best and easy access to cash comes with your personal savings account. You can look for ways to grow your emergency fund and save enough money for your retirement.

2. Stock up enough in your nest egg that can substitute 80% of your annual income

When it comes to deciding how much money you would need to save to cover up your living expenses post-retirement, it becomes difficult to predict a figure. But as a general rule, you can expect that you would need at least 80% of what you were previously earning times the number of years you expect your retirement to last.

Using the general rule, let’s create a formula:

Total money to save = 80% of your previous income * number of years post retirement

The number of years post-retirement is something you need to guess. A survey by Social Security Administration says that “25% of today’s 65-year-olds will live past the age of 90.”

For instance:

If you’re going to retire anytime soon and you’re earning an annual income of $100,000 then you can expect 25 years after retirement. Now, using the general rule the total money you need to have in your savings would be:

3. Refrain from entertaining any mortgage debts left

A survey by the Consumer Financial Protection Bureau says that almost 30% of homeowners who are 65 and above kick off retirement with mortgage debt. After retirement, you will have a limited income and thus a mortgage debt can become stressful. Planning ahead and clearing off mortgage debts even before you retire, and then you can use your retirement fund in a more productive way. You can even stretch your budget on other investments when you are free of mortgage debts. Also, the cost of maintenance increases as the home gets older. Thus, post-retirement handling both mortgage debt and house maintenance cost can be little troublesome.

4. Try to get rid of credit card debt that is costing you more

In general, it’s never a good idea to encourage credit card debts for a long run and it can be worse when you’re nearing retirement. Try to clear off all your credit card debts before your fixed income becomes limited and you retire. You would not want to spend all your money on monthly payment on debts post-retirement when you can use that money wisely.

Summing up:

If you want to have a comfortable lifestyle after retirement you would require the right amount of savings to cover up your expenses. Plan to reach the 4 above mentioned financial milestones to reach before your retire so as to cherish your retirement phase to the fullest.

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Great advice! I’m far from retirement, but this makes me think of issues that are relevant now, such as my mortgage. Right now, I’ll pay it off before I’m 65. If I refinance, that could change. Not that all refinancing is bad (I don’t think it necessarily is), but it certainly seems important to think of retirement when considering a refinancing.

Those would be horrific situations if I were older than 65 and still having mortgage debt! It would be stressful. At that age, you have to think about future Long Term Care costs or other costs, such as medications etc. Maybe I am just a worry wart 🙂

I recently set milestones (set, not achieved) of $400k, $600k, $1m, and $2.5m invested. Not quite the same as these (mine are more numbers-oriented) but I should have all debt paid off by the $1m milestone, if not earlier.JoeHx recently posted…5 Ways to Make Extra Cash with No Upfront Investment

This is a good list! I don’t have to worry about number 3 and 4. We got that under control. What we do have to worry about is our mortgage…basically our monthly expenses. Homes in Hawaii is expensive and it makes me depressed thinking about paying a mortgage while being retired.